Wait, I Have to Sue Where?

Posted on February 23, 2015

A forum selection clause is a provision in a contract wherein the parties agree that any dispute arising under the contact will be litigation in a specific jurisdiction or court. A choice of law provision is one in which the parties agree that any legal dispute will be governed by the law of a specific state. The following is an example of a combined forum selection and choice of law clause:

This Agreement shall be governed by the law of the State of Ohio. The parties consent to the jurisdiction of the Summit County Court of Common Pleas for the adjudication of all disputes arising hereunder.

Although forum-selection and choice of law clauses are found in nearly every contract these days, not many people give much thought to the consequences of agreeing to litigate in a pre-determined forum. The U.S. Supreme Court has held that, while courts should ordinarily enforce “a valid forum-selection clause,” they may also consider the interest of the public in refusing to enforce particularly onerous forum-selection clauses.

In Atlantic Marine Constr. Co. v. United States Dist. Court for the Western Dist. of Texas, 134 S. Ct. 568 (2013), local drywall subcontractor J-Crew contracted with Atlantic Marine, Virginia-based national general contractor, to build a child-care facility in Fort Hood, Texas. The child-care facility was located on property owned by the federal government. The parties agreed, using Atlantic Marine’s form subcontract, that all disputes arising out of the subcontract would be litigated in Virginia, over than 1,400 miles from the project site, but mere few miles from Atlantic Marine’s headquarters. When a payment dispute arose, J-Crew sued Atlantic Marine in in Texas. Atlantic Marine argued that the lawsuit should be dismissed or transferred to Virginia based on the forum-selection clause in the subcontract.

The Texas court refused Atlantic Marine’s requests, and, in so doing, cited the inconvenience that J-Crew would suffer having to litigate in such a distant court. On appeal, the U.S. Supreme Court held that, while J-Crew’s choice of venue deserved deference, it also bore the burden of showing why the case should not be transferred to the forum to which the parties agreed in the subcontract. The Supreme Court held that the lower court was required to consider the public interest factors to support J-Crew’s desire to keep the litigation in Texas. However, the Supreme Court also noted that its “analysis presupposes a contractually valid forum-selection clause.” This commentary is important, as many states, including Texas and Ohio, have laws forbidding the use of forum-selection clauses in construction contracts that require litigation to occur outside the state in which the project is located.

In Ohio, Revised Code Section 4113.62 states that “Any provision of a construction contract***that requires any litigation, arbitration, or other dispute resolution process provided for in the construction contract, subcontract, agreement, or understanding to occur in another state is void and unenforceable as against public policy.” Although there are a multitude of reasons for such provisions, the most important is that a powerful contracting party – by insisting on the selection of a distant forum – can make litigation so expensive or difficult that it would be impossible for the weaker party to succeed on even the most meritorious claim.

Although contractors and subcontractors can rest easy that they are protected from such onerous forum-selection clauses of by provisions of Section 4113.62, other business owners do not enjoy such security. This is why it is imperative that all Ohio business owners consult with experienced legal counsel during the consideration and negotiation of their contractual agreements. For questions regarding forum-selection clauses, general contractual provisions, or any other aspect of Ohio construction or business law, please contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or tharpst@harpstross.com or nhorrigan@harpstross.com.

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